Service charge

Government Takes Steps to Lower Microcredit Service Fees

11-member body formed

| Updated:
05 September 2022 13:13:59

The government has taken steps to reduce the interest rate or service charge for microcredit operations from the existing 24% charged by micro-finance institutions (MFIs) to provide relief to poor borrowers.

For this purpose, an 11-member committee, headed by the President of Grameen Bank, Prof. Dr. AKM Saiful Majid, has been formed.

The committee held its first meeting last week and formed a technical committee to analyze the cost of MFI services and determine if it is possible to reduce charges.

Speaking to FE, Md Fashiullah, executive vice president of the Microcredit Regulatory Authority (MRA), said the committee would decide whether the service fee can be reduced or not.

This is a regular process, as there is a mandate to review MFI costs and service charges every two years, he added.

Last year, the MRA formed a 10-member committee, led by its executive vice president, to review the service fee, but the body was dismissed without a decision.

Later, the MRA formed another technical committee, led by its director Mohammad Yakub Hossain, to assess potential service charges for microcredit activities. The operations of the committee also ended without any results.

Now the new committee is formed. It is run by someone, who is not from the regulator – but from the microcredit sector.

Md Fashiullah said the MRA had made the chairman of Grameen Bank the new head of the committee, given his experience in the sector.

“It does not mean that the decisions of the committee will be in favor of the MFIs. There are members from the regulator, the ministry, the sector and experts. The decisions will be based on the real situation,” he added.

In 2019, the regulator set the maximum interest rate for microcredit at 24% after almost nine years. It capped the interest rate at 27% for the first time in 2010.

A director of the MRA, speaking on condition of anonymity, said streamlining microcredit service fees is being actively considered by the government.

But MFIs strongly oppose the decision to reduce service charges, he added.

The previous committee in 2019 had recommended reviewing the interest rate using the declining balance method every two years.

Experts have stated on different occasions that the interest rates or service charges of MFIs are too high.

Reducing the burden is crucial to help reduce poverty and ensure economic growth, they added.

According to experts, existing microcredit service fees are intolerable for poor borrowers.

The government established the MRA under the Microcredit Regulatory Authority Act 2006 – to oversee microfinance operations in the country and promote sustainable growth of the sector.

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